I'm about to a deal with someone who is in foreclosure. I've agreed to pay the reinstatement amount in exchange for them signing the deed over to me. At that time I will get the house cleaned up and list it on the market and when it sells I've agreed to get reimbursed my costs for reinstatement plus any other costs plus a fee for my efforts. The rest of the proceeds will go to the previous owner. I want to make sure I do this correctly from a tax standpoint since all I'm making is a flat fee. Since the previous owner is getting most of the proceeds does the closing attorney issue him a 1099S and then issue my company one for a much lower amount? Any advice would be appreciated.
Hi Chris, if I understand the transaction it sounds like you will receive a 1099-S for the full amount. On your tax return you would report the proceeds, subtract costs and proceeds paid to seller, then the remaining profit would be your flat fee. Sounds like this could possibly be a Schedule C activity so keep self employment tax in mind. You should consult a tax professional for an answer based on your unique situation, this is not tax advise just general information.
I'm about to a deal with someone who is in foreclosure. I've agreed to pay the reinstatement amount in exchange for them signing the deed over to me. At that time I will get the house cleaned up and list it on the market and when it sells I've agreed to get reimbursed my costs for reinstatement plus any other costs plus a fee for my efforts. The rest of the proceeds will go to the previous owner. I want to make sure I do this correctly from a tax standpoint since all I'm making is a flat fee. Since the previous owner is getting most of the proceeds does the closing attorney issue him a 1099S and then issue my company one for a much lower amount? Any advice would be appreciated.
I would first talk to a real estate attorney or a foreclosure attorney to make sure that the way you plan to do things passes muster. Serious consequences when dealing with foreclosures, both local and federal.
Thanks Angel. For the proceeds I have to pay seller I would have to issue him a 1099 right? Do you think putting it in a land trust would make things better for them?
Hi Chris, I don't have any context regarding the seller's situation so no comment on the land trust. Reporting the proceeds you pay to seller on a 1099 sounds reasonable.